Business Structures and Forms
In Gaza, the prevailing legal framework for registering a company is the British Mandatory Companies Law, No. 18 of 1929, as amended. The Palestinian Authority Ministry of Justice now administers registration of companies in Gaza.
In areas of the West Bank that have attained self-rule, the Jordanian Companies Law No. 12 of 1964 is the prevailing framework for registering a company. In Jericho and in other areas where the Israeli Defense Forces have withdrawn, the registration process for registering a company is now administered by the Controller of Companies located in the Palestinian Authority's Ministry of Economy, Commerce and Industry. In other areas, the duties of the Registrar of Companies are handled by the Civil Administration.
Two types of companies are recognized under the prevailing legal frameworks in both Gaza and the West Bank: private stock companies and public stock companies. Companies established in Gaza may only issue one class of shares, in contrast to companies established in the West Bank, which are entitled to issue different classes of shares.
A private stock company must have a minimum of two shareholders and a maximum of fifty shareholders. Such companies are prohibited from offering their shares to the public. Furthermore, private stock companies may impose restrictions on the transferability of their shares. Liability of a shareholder in a private stock company is limited to the value of the shares such shareholder holds in the company.
Public stock companies must have at least seven shareholders. Public stock companies may not restrict the transferability of their shares. Liability of a shareholder in a public stock company is limited to the value of the shares such shareholder holds.
The amount of share capital, expressed in Jordanian (JD) or Israeli (NIS) currency must be divided into shares of equal nominal value of not less than JD 1 and not more than JD 10. A shareholding company, from the date of its registration, becomes a corporate body bearing the name that is stated in the by-laws and articles of association.
In both Gaza and the West Bank, the general partners of a public stock company must subscribe to a minimum of 10 percent of the shares. The remaining shares are to be offered for public subscription by means of a notice published in at least two daily newspapers one week prior to the subscription's commencement.
If the total value of the project exceeds JD 50,000, and among the general partners there is a foreigner, the general partners may not cover more than 75 percent of the shares and the remainder of the shares must be offered to the public.
A foreign company (including subsidiaries, representatives and branch offices) that wishes to conduct business in the Palestinian Authority must fulfill the identical registration requirements as a locally established company. The foreign company must file copies of its certificate of incorporation, memorandum and articles of association, authenticated by the registrar of companies located in the place of its incorporation. These documents must also be translated into Arabic. The documents should include the nationality, age, address and initial stock holding of each of the founding shareholders of the company, as well as the amount of the company's authorized share capital upon its establishment.
In addition to its registration application, a foreign company must provide a letter stating the names, addresses and nationalities of the directors of the company and of others who have been granted signatory rights on behalf of the company. A company representative and attorney must be appointed in order to register the company. In the autonomous Palestinian areas, a power of attorney authenticated before a notary public is sufficient. In other areas of the West Bank, authentication must be carried out by an Israeli foreign consular official.
The fees for registration of a foreign company are not equal to those applicable to locally established companies. Foreign companies registering in Gaza must pay a registration fee of approximately US$ 100. In the West Bank, as of April 1995, a foreign company whose initial capital upon incorporation in its country of origin was less than US$ 1.666 million had to pay a registration fee of US$ 1,870. A foreign company whose initial capital upon incorporation in its country of origin was more than US$ 1.666 million must pay a registration fee of US$ 3,740. There are also certification and publication fees and stamp duties that are applied to the registration of a company.
Where the Civil Administration is still responsible for administering the registration of companies, additional requirements are imposed, including applications for work permits for non-resident shareholders. These additional requirements result in extended delays of up to six months in the registration of companies. In contrast, registration of companies within the autonomous areas may be completed in a week to ten days.
Partnerships in the Palestinian Authority are divided into two categories: General and Limited Partnerships. The law recognizes a partnership when two or more people work together to operate a for-profit business. In the General Partnership, all partners are jointly and severally liable for all the obligations of the firm that are incurred while serving as a partner. The name of at least one of the partners must be indicated in the title of the general partnerships. Limited Partnerships are required to have at least one general partner who is personally responsible for the liabilities of the company and at least one limited partner whose liability is limited to the amount of capital invested. The latter may not participate in the management of the company. The shares in a partnership are to be divided in accordance with the shareholders' agreement. Partnerships must register with the Companies Registrar, in accordance with Law No. 12 of 1964 in the West Bank and the Companies Ordinance No. 18 of 1929 in the Gaza Strip. They are subject to a flat fee of 493 NIS, service fees of 285 NIS, a fee per shareholder of 74 NIS and a stamp fee of 13 NIS.
One of the most common forms of business found in the PA areas is the sole proprietorship. This is typically a small, often family-owned enterprise which has a license to operate but is not a registered business or formal entity. Sole proprietorships are not recognized as a company and, thus, do not enjoy the benefit of limited liability. Bank accounts and tax records have to be registered in the name of the owner and not in a company's name.
As of January 1997, the PA began to enforce a law in effect since March 1996, which requires the appointment of direct dealers/agents for all goods entering the PA areas. The law requires all foreign companies distributing goods in the PA areas to appoint a direct agent who is to register with the Ministry of Economy and Trade in accordance with the prevailing rules and regulations. The agency rights are deemed to cover the entire area of the PA (West Bank and Gaza). To protect direct agency rights, the Ministry will prevent the import, entry or distribution of goods into the Palestinian market unless authorized by the agent. Direct agents may also authorize primary, sole or more distributors in the PA areas in order to facilitate delivery of goods to and between the West Bank and the Gaza Strip. Individuals and companies that already have direct agency agreements for the PA areas must register as agents (individual and/or company) and register the agency agreement itself with the Ministry. If business is conducted in areas where agents are not used in the ordinary cause of business, foreign companies may qualify for an exemption from the Ministry whereby they may distribute through distributors and middlemen who have to register at the Ministry's Registrar of Distributors and Middlemen.
The law further stipulates that agents for special category goods including cigarettes, electrical appliances, pharmaceuticals, cars, certain foodstuffs and agricultural items are forced to comply with the technical requirements of the concerned ministries and departments of the PA prior to registering with the Ministry.
© 2000 Mena Report (www.menareport.com)